Guidance on the Filing of Requests for Confirmation, Tax Treaty Relief Applications, and Tax Sparing Applications
By Nica Marsha Gasapo on March 3, 2022
In 2021, the Bureau of Internal Revenue (BIR) issued Revenue Memorandum Order (“RMO”) No. 14-2021 and Revenue Memorandum Circular (“RMC”) No. 77-2021 which streamlined the procedure for the availment of benefits under the applicable tax treaty. These issuances likewise introduced the nature of the application to be filed by the taxpayer as well as the issuance of a Certificate of Entitlement to Treaty Benefit (“COE”) by the Bureau of Internal Revenue (“BIR”).
For payments made by a Philippine income payor to nonresidents that applied the provisions of a relevant tax treaty, a consolidated Request for Confirmation (“RFC”) per nonresident-income payee should be filed by said income payor (as the constituted withholding agent) with the BIR’s International Tax Affairs Division (ITAD) to obtain confirmation of the correctness or entitlement to the treaty benefits. The filing of the RFC must be made at any time after the payment of withholding tax but shall not be later than the last day of the 4th month following the close of each taxable year.
On the other hand, if the income payment was subjected to the regular tax rate, the nonresident income payee is required to file a TTRA with BIR ITAD if it intends to claim entitlement to the treaty benefits. A claim for refund may also be filed independently or together with the TTRA. Failure to prove entitlement to the treaty benefits may result in the confirmation of the tax rate previously applied on the income, and in the eventual denial of the TTRA (and the claim for refund).
On February 17, 2022, the BIR issued RMC No. 20-2022 which seeks to limit the number of RFCs and TTRAs filed with the BIR ITAD and provide guidance on the filing of requests for confirmation, tax treaty relief applications, and tax sparing applications, as well as those taxpayers who were already issued a COE.
For recurring transactions, such as payment of dividends, branch profits remittance tax, interest, royalties, income from air or shipping transport, and other recurring income, taxpayers who were issued already issued a COE need only to check the requisites mentioned in the COE. If the tenor allows the ruling to be applied to subsequent or future income payments of similar nature and to the same nonresident payee, the filing of a new RFC or TTRA shall no longer be necessary. Thus, if the COE mentions tax residency as a requisite for continuous enjoyment of treaty benefit, the income payor must require the nonresident to submit first a Tax Residence Certificate (“TRC”) duly issued by the foreign tax authority prior to making payment of income for such relevant year. If any of the requisites in the COE is not complied with, then a new RFC or TTRA or a tax sparing application must be submitted.
During a tax audit, a copy of the duly issued COE and proof of satisfaction of the requisites must be presented. The revenue examiner is mandated to ensure the authenticity of these documents provided by the income payor. In case of doubt, he or she may also seek the assistance of the BIR ITAD.
For non-recurring transactions, (e.g., business profits, income from services (dependent or independent), capital gains, income derived by teachers), the COE limits the applicability of the ruling to a particular transaction or period of engagement. Hence, the RFCs or TTRAs shall still observe the procedures and requirements outlined in RMO No. 14-2021 and RMC No. 77-2021.
As to the annual updating of long-term contract of services, the taxpayer concerned shall submit the following: (1) tax residency certificate of the nonresident for the relevant year; (2) sworn certification stating (a) the services provided by the foreign enterprise, (b) place of performance of such services, (c) individuals who rendered the services on behalf of the foreign enterprise, their positions/designations and professional background, (d) duration of stay in the Philippines of said individuals; (3) certified true copy of their passports or a certification duly issued by the Bureau of Immigration stating their dates of arrival in, and departure from, the Philippines; (4) certificate of completion of the project duly signed by the income recipient and duly accepted by the domestic payor, if applicable; (5) invoice(s) duly issued by the income recipient in accordance with the invoicing requirements of the country of residence, if applicable; and (6) bank documents or certificate of deposit or telegraphic transfer or telex or money transfer evidencing the payment or remittance of income, if applicable.
Indeed, the issuance of RMC 20-2022 offers convenience and efficiencies both to taxpayers (and income recipients) and our tax authorities, particularly the BIR ITAD. For taxpayers with recurring transactions, the burden of repeated filing of a request for confirmation, TTRA, or application of the tax sparing rule is eliminated. By not requiring the taxpayers with recurring transactions to repeatedly file their requests and applications for the same nature of income payment and the same nonresident payee, the BIR ITAD will not be swamped by requests and applications.
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Nica Marsha V. Gasapo is a Junior Associate of Mata-Perez, Tamayo & Francisco (MTF Counsel).